To Raise New Revenue, Netflix and Amazon Prime Might Need to Accept Ads

New GfK study suggests subscribers would have little tolerance for increases in monthly fees

According to new GfK research, subscribers to Netflix, Amazon Prime, and Hulu – the “Big Three” of streaming services – are already paying at or close to the maximum monthly fees they feel these services are worth. As costs for original productions and exclusive content continue to rise, commercial-free streaming brands like Netflix and Amazon may need to consider advertising as an alternative for achieving revenue and profit growth without an increase in current subscription fees. (Hulu is already ad supported.)

The study, Comparing Streaming Services 2016, suggests that $10 to $11 is the most that subscribers would be willing to pay each month, on average, for Netflix or Amazon Prime. This compares to the current subscription prices of $9.99 per month for standard Netflix service and $10.99 for Amazon Prime’s month-by-month subscription plan. While the research suggests that subscribers to Netflix might be slightly more price tolerant – willing to pay over $10 per month – none of the services has much wiggle room when it comes to fee increases.

The study also shows that original and/or exclusive content (“not available on any other service”) only ranks 9th among the top reasons that people subscribe to streaming services, cited by (47%) of major streaming service users. Access to content not received via regular TV services is the #12 reason, selected by 38% of respondents.

Netflix and Amazon Prime did see “original series/movies” grow significantly as a reason for using the services – although this is still not a major driver. The proportion of Netflix users citing this as a reason jumped from 3% to 12% between 2014 and 2016, and for Amazon the percentage doubled, from 4% to 9%.

Not surprisingly, the most important attribute in choosing a streaming service among streaming users is cost, cited by 75%. “Availability of specific programs” came in 2nd at 69%; and “availability of new movies” was 3rd, at 68%. All three of the major subscription streaming services were seen as underperforming on these top three attributes.

“With all three major SVOD firms raising their commitments to original and exclusive programming, the investment required for these flagship shows may need to be offset by new revenue streams in order to meet investor expectations,” said David Tice, SVP of GfK’s Media and Entertainment team. “Hulu and other ad-supported services have offered ‘ad-free’ subscriptions as a premium option; conversely, Netflix and Amazon Prime may need to introduce ‘ad-inclusive’ subscriptions to hold the line on monthly subscription costs for their price-sensitive customer segments.”

The new study, part of GfK’s The Home Technology Monitor™ report series, was conducted among 2,311 US consumers ages 13-64, including 1,007 regular users of a major streaming service (Netflix, Hulu, Amazon, YouTube, or TV Everywhere). Other topics covered in the report include: • Usage and awareness of a number of SVOD and free streaming services • Importance of a number of attributes to choosing a streaming service • Deep dives on specific streaming services:• Performance vs. the importance attributes; most important reason for use • Each service’s place in hierarchy of viewing choice • If non-users of each service ever had that service, ever stopped using that service; and why

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